Contact: Jackie De Haan |
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GUARDIAN FINANCE AND ADVOCACY SERVICES |
Quickie Tax Refunds are Expensive
By: Jackie De Haan, Guardian Finance and Advocacy Services
| Also published in the West Michigan Senior Times and the Battle Creek Shopper |
A quickie can cost you dearly, when it comes to tax refunds.
I refer to “refund anticipation loans,” aka “fast cash refunds”, “express money,” or “instant refunds.” These are loans offered by some tax preparers that front you the money you expect for a tax refund, so you don’t have to wait.
Marketed to middle and low-income people, the loan fees are typically $30 - $90. This translates into an Annual Percentage Rate (APR) of about 60% to over 700 %, according to the National Consumer Law Center (NCLC).
The secret is that you are borrowing the money for about two weeks, the time needed for your refund to arrive if you file electronically. Risk is also involved. If the IRS denies your claim to a refund then you still must pay back the loan. Assuming you were broke to begin with, you now have an additional debt.
If you do not pay it back on time, your credit will be damaged and extra fees will be charged.
But Wait, It Gets Worse
These loans attract questionable players into the tax preparation business and promote tax fraud by preparers, according to the NCLC. By “questionable players,” they refer to businesses that are historically associated with the exploitation of consumers, such as payday loan stores and check cashers. They also include some retailers, such as jewelry and furniture stores, used car dealers and some businesses that focus on immigrant communities.
This kind of loan provides incentive for “fringe preparers” to enter the business of tax preparation, “sometimes with less than competent or savory results.” They cite congressional testimony by the IRS chief of criminal investigations who reported that 75% of tax returns identified as questionable and/or fraudulent were associated with this type of loan.
Further, the IRS chief testified that refund anticipation loans are the tool of choice for fraudsters who commit tax identity theft.
My advice: wait for the refund; you probably do not want to get involved in this.
Do you have a story you would like to share in this column? Your privacy will be protected. Write or email your story to Jackie De Haan, Guardian Finance and Advocacy Services, 535 S. Burdick Street, Kalamazoo MI 49007 or jdehaan@yourguardian.org.
“Safeguarding At-Risk Adults,” Guardian Finance and Advocacy Services is a nonprofit organization with forty-three years of trusted service to the people of Kalamazoo and Calhoun Counties. Their services range from helping people balance their checkbook to serving in court appointed roles. More information is available at www.yourguardian.org or tel. (866) 344-0688 ext. 434. Guardian is a United Way organization.